By Daphne Psaledakis

WASHINGTON, (Reuters) – The U.S. Treasury Department issued a series of recommendations on Friday to fight illicit finance in high-value markets for art and warns that emerging digital art markets like non-fungible tokens may pose new risks.

According to the Treasury, there was some evidence that money laundering is possible in the market for high-value artwork, however, it found very little evidence of terrorist financing.

The report stated that the markets are most at risk if financial service providers aren’t subject to anti money laundering or counter-terrorism funding obligations. However, it warned that asset-based loans “can be used as a disguise to conceal the source of funds and to provide liquidity to criminals.”

According to a Treasury senior official, the next steps will include engaging industry and Congress stakeholders to obtain their input. The Treasury also hopes that the study will inspire industries to implement additional steps to reduce the possibility of illicit proceeds being laundered through the art market. According to the official, additional regulations will be considered by Treasury in order to protect this market.

According to the study, there are new risks associated with the market for digital art, including NFTs. Digital art is also susceptible to money laundering due its unique characteristics.

Last year, NFTs became a very popular type of crypto asset. There are many digital objects, including art, videos and tweets. You can sell them as NFTs. These crypto assets use unique digital signatures which ensure that they’re one-of-a kind.

It was recommended that the study consider several solutions to the risk, such as updating law enforcement training, improving information sharing between the private sector and applying antimoney laundering and countering terrorist financing requirements for certain art market participants.

It said, however, that multi-billion dollar industries, in comparison to those that are terrorist financing or money laundering risks, shouldn’t be the immediate focus of any requirements to stop illicit financing.

The majority of art market participants do not currently have to comply with anti-money laundering and counter-terrorism financing regulations. However, the study found that art has many qualities which make it appealing for money laundering.